Think tank warns of cyber accumulation risk

Cyber insurance offerings and premium volumes have expanded sizeably and accumulation risks need to be addressed in the context of a hyperconnected digital world, the Geneva Association warns.

Keeping up with demand is challenging and sustainable growth in the cyber insurance market should not be taken for granted as the accumulation risk rises, the think tank explained.

The Geneva Association has identified three prerequisites to ensure sustainability of cyber insurance in the study “Advancing Accumulation Risk Management in Cyber Insurance”.

First, customers and insurers must facilitate resilience at the source of risk, according to the report. Second, insurers need to make an acceptable return on capital. And third, available capital must absorb shocks from accumulation risks.

"Expanding the boundaries of insurability is not new for insurers,” said Anna Maria D'Hulster, secretary general of The Geneva Association. “However, cyber risks are taking us into uncharted territory. Both exposures and threats have distinct characteristics, bringing unprecedented challenges."

The report highlights four cyber accumulation risk challenges. A single large event or a series of consecutive events may make affirmative cyber insurance unprofitable, the report says.

Also, insurers and reinsurers could underestimate cyber exposures resulting in unplanned shocks from a major event. In addition, data of insufficient quality may be used for more advanced modelling techniques.

Governments predominantly fail to provide frameworks for the sharing of cyberterrorism-induced losses, the report notes. In response, insurers have developed several approaches, including the development of data analytics that analyse the characteristics of cyber risk, as well as data protocols that combine company information with digital risk indicators.

Insurers have also developed novel approaches to analysing the risk “footprint” and corresponding threats impacting the “size of the footprint,” for example, by applying the mathematics of epidemiology to the spread of computer viruses.

Insurers are also mapping cloud-related interconnectivity and digital supply chains, and using machine learning to assess the relationship between claims frequency and multi-dimension exposure.

"Cyber risk has distinct characteristics,” Daniel Hofmann, senior advisor insurance economics at The Geneva Association noted. “Exposure bases are hard to define and measure. Historical claims data are scarce and not good predictors,” he warned.

“Threats are constantly evolving, can spread widely and rapidly, and a series of consecutive large events is plausible. Moreover, a high degree of interconnectivity may result in potentially boundless impacts," Hofmann added.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

More of today's news

China court rejects Anbang's jailed ex-chairman appeal

Aon names US commercial risk broking head

Severe monsoon flooding causes $1.2bn loss in India

ACORD introduces data standards reinsurance toolkit

Allstate cat losses drop in July

Nat Re appoints new CEO, president

Don't miss our insurtech email newsletter - sign up today